USD/CAD forms head-and-shoulders pattern amid conflicting fundamentals

USD/CAD is displaying a classic head-and-shoulders pattern on the daily chart, currently trading at 1.3580 with the neckline positioned at 1.3520. The technical formation suggests potential downside to 1.3400 if broken, representing a 1.3% decline from current levels. Fundamental factors present a complex picture: while the Federal Reserve maintains its hawkish stance supporting USD strength, recent Canadian inflation data surprised to the upside at 2.7% year-on-year, increasing Bank of Canada rate hike probabilities. Oil prices hovering near $85/barrel provide additional CAD support given Canada's energy exports. The pair faces immediate resistance at 1.3620 (right shoulder high) and crucial support at the neckline. A decisive break below 1.3520 would confirm the bearish pattern, while failure to break could see a retest of 1.3700. Traders should monitor upcoming US retail sales and Canadian housing data for directional catalysts.